Question 1 You recently went to work for Ndejiku Company, a supplier of auto repair parts used in the after-market with products from Daimler, Chrysler, Ford, and other automakers. Your boss, the chief financial officer (CFO), has just handed you the estimated cash flows for two proposed projects. Project X involves adding a new item to the firm’s ignition system line. Project Y involves an add-on to an existing line, and its cash flows would decrease over time. Both projects have 4-year lives. Here are the projects’ net cash flows (in thousands of kwachas): Year 0 1 2 3 4 Project X -110,000 10,000 60,000 80,000 90,000 Project Y -110,000 90,000 60,000 30,000 10,000 If Ndejiku’s cost of capital is 10%. Advise whether one or both of the projects should be accepted using: Payback period method if Projects are mutually exclusive Projects are Independent of each other Net Present Value (NPV) if projects are independent of each other
Question 1 You recently went to work for Ndejiku Company, a supplier of auto repair parts used in the after-market with products from Daimler, Chrysler, Ford, and other automakers. Your boss, the chief financial officer (CFO), has just handed you the estimated cash flows for two proposed projects. Project X involves adding a new item to the firm’s ignition system line. Project Y involves an add-on to an existing line, and its cash flows would decrease over time. Both projects have 4-year lives. Here are the projects’ net cash flows (in thousands of kwachas): Year 0 1 2 3 4 Project X -110,000 10,000 60,000 80,000 90,000 Project Y -110,000 90,000 60,000 30,000 10,000 If Ndejiku’s cost of capital is 10%. Advise whether one or both of the projects should be accepted using: Payback period method if Projects are mutually exclusive Projects are Independent of each other Net Present Value (NPV) if projects are independent of each other
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Question 1
You recently went to work for Ndejiku Company, a supplier of auto repair parts used in the after-market with products from Daimler, Chrysler, Ford, and other automakers. Your boss, the chief financial officer (CFO), has just handed you the estimated cash flows for two proposed projects. Project X involves adding a new item to the firm’s ignition system line. Project Y involves an add-on to an existing line, and its cash flows would decrease over time. Both projects have 4-year lives. Here are the projects’ net cash flows (in thousands of kwachas):
|
Year |
0 |
1 |
2 |
3 |
4 |
|
Project X |
-110,000 |
10,000 |
60,000 |
80,000 |
90,000 |
|
Project Y |
-110,000 |
90,000 |
60,000 |
30,000 |
10,000 |
If Ndejiku’s cost of capital is 10%. Advise whether one or both of the projects should be accepted using:
- Payback period method if
- Projects are mutually exclusive
- Projects are Independent of each other
Net Present Value (NPV) if projects are independent of each other
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